Low paid self-employed need affordable National Insurance contributions

The Low Incomes Tax Reform Group (LITRG) has commented on changes confirmed today for national insurance (NI) contributions for the self-employed.

Robin Williamson, LITRG Technical Director, said:

“The self-employed do not get sick pay or automatic enrolment into a pension scheme. Their NI contributions help them to secure the state pension and other state benefits.

“The Chancellor announced NI contributions will change for the self-employed, and this may mean that many self-employed people with low profits will have to pay more. Some transitional protection has been promised for those on lower incomes but we remain concerned that if these contributions become unaffordable, people will not make them and will not accrue rights to contributory benefits. Ultimately, this will put more pressure on the state to provide non-contributory benefits.”

Currently all self-employed people are liable to pay Class 2 and Class 4 NI contributions, depending on their level of profits. Class 2 contributions go towards providing state retirement pension, maternity allowance, bereavement benefits and contributory Employment & Support Allowance. Class 4 NI contributions provide no such entitlement to contributory state benefits.

Class 2 NI is payable at the rate of £2.80 per week for those earning more than £5,965 in the year. Crucially, for those who earn less than that sum, they are able to voluntarily pay Class 2 NI contributions to secure those state benefits, if they wish.

From April 2018, the government intends that entitlement to these state benefits will be accessed through paying Class 3 and Class 4 NI contributions. Class 3 NI contributions are currently £14.10 per week, very significantly more expensive than Class 2 NI. While the new rates have not been announced the fact that it was stated ‘There will be provision to support self-employed individuals with low profits during the transition’ implies that the cost of Class 3 NI will be significantly higher than the cost of Class 2 NI.

Robin Williamson added:

“We urge government to ensure that the transitional arrangements they put in place mitigate the cost of the changes to the low earning self-employed.”

Notes to editors

1.                    Low Incomes Tax Reform Group

The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 17,600 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk (Out of hours contact: George Crozier, 07740 477 374)